Alphabet revenue grows amid advertising strength

1of2Google CEO Sundar Pichai speaks during a product event, Tuesday, Oct. 4, 2016, in San Francisco. Google launched an aggressive challenge to Apple and Samsung, introducing its own new line of smartphones called Pixel, which are designed to showcase a digital helper the company calls "Google Assistant." (AP Photo/Eric Risberg)Photo: Eric Risberg, Associated Press

2of2Google CEO Sundar Pichai speaks during a product event, Tuesday, Oct. 4, 2016, in San Francisco. Google launched an aggressive challenge to Apple and Samsung, introducing its own new line of smartphones called Pixel, which are designed to showcase a digital helper the company calls "Google Assistant." The new phones represent a big, new push by Google to sell its own consumer devices, instead of largely just supplying software for other manufacturers. (AP Photo/Eric Risberg)Photo: Eric Risberg, Associated Press

Alphabet Inc., the parent company of Google, said Thursday its third-quarter revenue grew 20 percent to nearly $22.5 billion, as more people used Google search to look for items on their smartphones and watch ads on YouTube.

The Mountain View company made a profit of about $5.06 billion in the quarter, up 27 percent from a year earlier. Revenue, excluding payments to partners to drive traffic to its sites, came to $18.3 billion, beating analysts estimates of nearly $18 billion, according to financial data firm FactSet.

The engine of Alphabet’s growth continued to be Google, which generated $22.3 billion in sales, much of it from advertising. Revenue within Alphabet’s Other Bets division, which includes long-term projects such as self-driving cars, Nest, Google Fiber and health firm Verily Life Sciences, was $197 million for the quarter, up 40 percent from a year ago.

Alphabet has faced scrutiny over its Other Bets, owing to the substantial investment and length of time devoted to the projects, which in some cases have yet to reach the market.

The company has been working on the self-driving car project for seven years, and the test cars have driven more than 2 million miles, but it has yet to announce when they might hit the market.

“As we reach for ‘moonshots’ that will have a big impact in the longer term, it’s inevitable there will be course corrections along the way and that some efforts will be more successful than others,” she said.

In the past year, she said, Alphabet has accelerated or paused some of the Other Bets businesses, adding, “We are taking the steps necessary to lay the foundation for a stronger future.”

Several CEOs of Alphabet businesses have stepped down this year, including Nest CEO Tony Fadell and more recently Craig Barratt, who oversaw Google Fiber, which planned to bring superfast Internet service to cities. Some analysts believe the changes had to do with Porat cutting investment into areas that don’t have a clear path to profitability.

“As she promised, she is going to be prudent on areas that aren’t providing a return or don’t have a path to providing a return” said Robert Peck, an analyst with investment bank SunTrust Robinson Humphrey.

Peck said it’s possible that some of these Alphabet companies could be spun out into their own firms in the future.

On Tuesday, Barratt said in a blog post that Google Fiber would suspend plans to bring its service to some cities, including San Jose, and there would be layoffs.

Fiber recently acquired Webpass, a company that brings speedy Internet using wireless technology.

Porat said the team will be able to “focus on the potential with these efforts (such as in wireless technology) before we accelerate the deployment.”

The operating loss from Other Bets shrank to $865 million in the third quarter, down from $980 million in the same period last year.

Wendy Lee covers Yahoo, Google and Apple for The Chronicle’s tech desk. Previously, she worked at NPR-affiliate 89.3 FM KPCC in Pasadena, Star Tribune in Minneapolis and The Tennessean in Nashville.

Lee grew up in the Bay Area. She won The Chronicle’s high school scholarship in 2001 and landed a summer job as a copyperson at the paper, delivering mail, answering phones and writing news briefs. Lee graduated from UC Berkeley with a bachelor’s degree in history and wrote for campus newspaper The Daily Californian.

She is a member of the Asian American Journalists Association and a preliminary judge for The Gerald Loeb Awards.